IMF Executive Board Completes Second Review Under Burundi's PRGF Arrangement, Approves US$10.4 Million Disbursement and Agrees in Principle on Burundi Reaching its Decision Point Under the Enhanced HIPC Initiative

The Executive Board of the International Monetary Fund (IMF) has completed the second review of Burundi's economic performance under an SDR 69.30 million (about US$100.30 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 04/13), and approved the disbursement of an amount equivalent to SDR 7.15 million (about US$10.37 million), which will bring the total disbursements under the PRGF arrangement to SDR 40.70 million (about US$59.03 million).

Executive Directors also agreed, in principle, that Burundi has taken the steps necessary to reach its decision point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative, and to provide Burundi with interim assistance. This decision on Burundi's decision point under the enhanced HIPC Initiative is contingent upon the Executive Board of the World Bank also deciding Burundi has reached the decision point under the enhanced HIPC Initiative. A press release will be issued jointly with the World Bank following the World Bank deliberations.

"Burundi has made good progress in strengthening macroeconomic policy performance and deepening the structural reform agenda. The authorities have taken important steps to solidify the peace and bring the political transition process to a successful conclusion. Continued peace and security are essential to form the basis for sustained growth and development.

"Burundi's performance under the PRGF-supported program has been broadly satisfactory. This was achieved notwithstanding exogenous shocks—a severe drought and crop disease in parts of the country as well as the surge in world oil prices. The higher-than-programmed inflation underscores the need to quell price pressures.

"In view of the large challenges Burundi still faces, in particular the widespread deep poverty, a continued commitment to sound economic policies will be essential to bring about the sustained strong growth necessary for poverty reduction and progress toward the Millennium Development Goals (MDGs). Such an effort will also require significant technical and financial assistance from the international community for many years to come.

"The continued strong revenue performance and containment of spending pressures are commendable. Stronger revenues, possible savings on security spending, and strengthened expenditure management could provide room to begin paying domestic arrears and to permit a gradual increase in civil service wages. It will, however, be important to secure the necessary resources before additional expenditures, in line with the program's objectives, can be contemplated.

"The Bank of the Republic of Burundi (BRB) has significantly strengthened its monetary policy instruments, financial sector supervision, and its own operations. The active use of the new instruments should help ensure a reduction in inflation toward the program's objective and improved management of the liquidity impact of large and irregular inflows of external budgetary assistance.

"The deepening of structural reforms is key to achieving broad-based private sector-led growth. It will be important, in particular, to maintain the momentum of the coffee sector reform, given its significant potential to raise rural incomes and export earnings and to begin the privatization of state assets in the productive and financial sectors.

"The authorities have made progress in the broad consultative process undertaken toward completing the full PRSP, which is now expected to be completed in late 2005. Setting up an expenditure-tracking mechanism and costing priority policies soon will be important in this context.

"Burundi's external debt situation will remain difficult even after HIPC debt relief, and strong economic policies, prudent debt management, and continued donor support on highly concessional terms will be needed to ensure a sustainable external debt in the medium term," Mr. Carstens said.

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a PRSP. This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.